May 18, 2003	Sunday	Rabi-ul-Awwal 15, 1424

KARACHI, May 17: Exporters of textiles and clothing to US were disappointed by the World Trade Organization’s (WTO) ruling that the United States’ controversial rules of origin for textile and apparel products — instituted in 1996 to restrict burgeoning textile imports from Asia — do not violate the core principles of the trade body’s rules-of-origin agreement.

In one of the most important battles India was spearheading against US Rules of Origin in Textiles, the WTO’s dispute settlement panel created a watershed when it summarily ruled that they do not violate WTO’s rules of origin agreement.

As a result of this ruling the discretionary nature of the US rules of origins will lead to absolute lack of transparency for exporters including Pakistan mainly from US non-preferential trade regimes.

The ruling appeared in the WTO’s newsletter for the month of May, 2003, in a dispute raised by India against the United States’ rules of origin for textile and apparel products, a three-member dispute settlement panel said in an interim “confidential” ruling that New Delhi had failed to show how the purported measures by Washington undermined Indian textile exports.

The US rules of origin led to a storm of protests in various Asian capitals in July 1996, as it threatened their exports of textiles and clothing to one of the biggest world market.

Previously, the US had lost all three major textile disputes raised by WTO members. In the first textile dispute raised at the WTO, Costa Rica secured a major victory against the US over Washington’s restriction on Costa Rican underwear exports. Subsequently, India won a major case against US restrictions on Indian wool shirts and blouses. And in third dispute, Pakistan succeeded in proving that the United States’ restriction on Pakistani cotton yarn exports was illegal.

The WTO’s dispute settlement body, which is regarded as the “jewel in the crown” by deciding more than 225 trade disputes, until now has caused sleepless nights for successive administrations in Washington.

Recently, the US lost comprehensively in two major trade disputes - the Byrd amendment to encourage US industry to raise anti-dumping and countervailing cases against foreign companies, and President George W Bush’s infamous safeguard measures to restrict imports of steel products in 2002.

Against this backdrop, trade analysts were expecting that the US would lose the rules-of-origin dispute hands down because the measures were allegedly aimed at helping its domestic textile producers. Currently, the US Congress is assessing whether the World Trade Organization rulings are biased against US laws.

The WTO’s complex rules-of-origin agreement allows most customs administrations to decide the origin of goods— the place where the product underwent the last substantial transformation.

The most widely applied criterion attributes origin to a country if the product was sufficiently changed there to move its customs classification from one heading to another.

In textile trade, the rules of origin play a major role because of the existing quotas applied by the industrialized countries on textile imports from developing countries.

At the core of this dispute is whether the US-amended Section 334 of the Uruguay Round Agreements Act, that brought substantial changes in the rules of origin governing textile and apparel products in 1996, section 405 of the United States Trade and Development Act of 2000, and the customs regulations to implement these provisions violate the application of World Trade Organization’s rules-of-origin agreement.

India said that section 334 - introduced by the administration of President Bill Clinton in July 1996 - effected a major change in the application of rules of origin to textile and apparel products as it departed from the “substantial transformation” rule that was at the core of the rules-of-origin agreement. Washington was actually pursuing its trade objectives through the section 334 amendment, India charged.